Financial Services Talking Points | 25/07/18

Financial Services Talking Points | 25/07/18

In today’s Talking Points: China unveils new measures to aid growth; Scott Morrison calls for WTO revamp as trade war threatens to escalate; Poverty in rural areas of China alleviated with the help of financial services; Australian social impact investment market reaches $6 billion

China unveils new measures to aid growth

Amid trade tensions and slower economic growth, China has announced a range of policies to combat “external uncertainties”. Whilst the policies don’t resort to large scale stimulus, it is a sign that the monetary policy stance is changing towards loosening. The policies include a range of tax cuts for businesses with research and development expenditure, and relaxing restrictions on banks to issue bonds for small firms, as well as a range of infrastructure projects in transport, gas and telecommunications. Local governments will also be encouraged to make better use of fiscal funds, and policies aimed at attracting the re-investment of foreign business will be enhanced.

Scott Morrison calls for WTO revamp as trade war threatens to escalate

The Australian treasurer has echoed the calls for the rules of the WTO to be revamped, as he believes they have been “unable to resolve the things that have led to these current tensions”. Australia joins France and the US as the latest country to criticise the WTO regarding issues such as the drawn-out nature of dispute resolutions and their inability to enforce rules surround intellectual property theft. Morrison believes the goal of the US’ “unconventional” strategy is not protectionism, but to have a more “open global trading system”. He also commended China on its “sensitivity and willingness to not see this escalate”, and downplayed trade war only having political risks, rather than financial or economic.

Poverty in rural areas of China alleviated with the help of financial services

Many villagers in impoverished areas of China are skilled craftspeople but have been unable to afford processing equipment and therefore unable to earn profit. More recently, however, the establishment of financial investment companies in those areas has alleviated their poverty to some extent; Zhao Yali – who made a net profit of only 5,000 in 2016 – is now the head of a bamboo cooperative in the village of Gouya, in the Anhui province of China, and earns roughly 20,000 yuan a year. This was enabled by the 30,000-yuan collateral-free loan given to Zhao by her bank, with an interest rate subsidy accommodated by government poverty alleviation funds. Hong Tiayun, Deputy director of the State Council Leading Group Office of Poverty Alleviation, states that “China will continue to promote inclusive finance in impoverished areas and try to solve the problems of poor people’s loans.”

While the market value of all impact investment products was worth $1.2 billion in June 2015, investors’ thirst for green bonds has pushed the Australian market for investments that accomplish social or environmental goals, to $6 billion this year. Green bonds serve a similar function to regular government bonds, except the investment must be used to fund a development which accomplishes environmental goals. Using the contribution of private investors to solving social problems is also a possibility which has attracted federal government attention; Treasurer Scott Morrison has stated that this may be useful when “existing policy interventions and service delivery aren’t getting the outcomes we want.”